The philosophy of economic policy-making: Keynes on ‘The End of Laissez-Faire’

keynes

John Maynard Keynes

Should government intervene in economic life? In advanced countries it does so extensively. Laissez-faire literally means ‘let (it/them) do’ or ‘let go’ and is a doctrine which preaches non-interference by government in the economy. In my view, it is not so much whether or not government should in many cases intervene, but how.

Here is Keynes, writing in 1926:

“It is not true that individuals possess a prescriptive ‘natural liberty’ in their economic activities. There is no ‘compact’ conferring perpetual rights on those who Have or those who Acquire. The world is not so governed from above that private and social interest always coincide. It is not a correct deduction from the Principles of Economics that enlightened self-interest always operates in the public interest. Nor is it true that self-interest generally is enlightened; more often individuals acting separately to promote their own ends are too ignorant or too weak to attain even these. Experience does not show that individuals, when they make up a social unit, are always less clear-sighted than when they act separately.”

From right to left, rich country governments often intervene to curry favour with particular interest groups. Sometimes these might come close to some kind of majority, though they often do not. This kind of intervention, while it is in some cases regrettable, is probably inevitable, especially in democracies with their constant pressure for politicians to respond to events.

To quote Bill Clinton when he first ran for president, ‘it’s the economy stupid’: the material conditions of life are part of our modern conception of ‘well-being’. If the economy is failing the many, governments can and must act to improve things. Across the world they failed to see the 2008 financial crisis coming, and could only really prevent it becoming another Great Depression. This was better than no response at all, or ‘laissez-faire’. Despite unprecedented intervention, at least for while, we still have not shaken off the legacy of this crisis, despite some degree of recovery in the US and UK.

Economics would therefore be better off termed political economy, as it used to be. This would help to make it clear that issues such as power, conflict, inequality and justice and the attempts to grapple with them by politicians and citizens, as individuals or as social groups, are inevitably connected with economic life as it moves along.

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One thought on “The philosophy of economic policy-making: Keynes on ‘The End of Laissez-Faire’

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